Video Games & Subscriptions: A Conversation with Xbox’s Sarah Bond
Zuora’s newest board member Sarah Bond leads Microsoft’s Gaming Ecosystem organization, integrated engineering, and business unit. Her team’s mission is to empower game creators to conceive, build, launch, and manage games — using any and all of Microsoft’s software and services from Xbox to Azure. Over the past few years, Sarah supported Global Gaming Partnerships, building Xbox Game Pass — Microsoft’s video game membership service — to a position of strength. Prior to Microsoft Sarah held a variety of senior roles at T-Mobile, where she was a member of the team that led that company’s turnaround. Sarah started her career at McKinsey & Company. She holds a BA in Economics from Yale University and an MBA from Harvard Business School.
Hi, Sarah. Toughest question first: What’s your favorite video game? Also, what’s a current game that you find particularly interesting?
Well, the first game I ever played was King’s Quest II. It’s a special game for me because I used to play it all the time with my father. But probably my all-time favorite game was GoldenEye on the N64. It was the perfect game to play in college with friends on a Friday. In terms of newer games, I’m a little biased because we own it, but Minecraft is pretty amazing. It’s a 10-year-old franchise that’s bigger than ever. It’s accessible to people of all ages and backgrounds, and it gets reinvented every day.
You mentioned in a recent presentation that there are currently well over two billion people playing video games, and you expect that number to increase to over four billion by 2030, which would be just under half of the entire global population. The industry has long since left Hollywood and the music industry in the dust in terms of total revenue (roughly $150 billion versus $42 billion for the global box office and $20 billion for the music industry). What explains this phenomenon?
I think the main concept to understand is that gaming is fundamentally a community activity now. People are constantly chatting with each other, even when they’re playing single-player games like Red Dead Redemption. Multiplayer games have essentially become places for people to hang out in: you have a persona, you have currency, there’s a culture, you do things together. Gaming is the only media form where you can share an achievement with someone, independent of location, language, race, or physical ability. Just since March, for example, we’ve seen a 70% growth in Xbox Game Pass members adding online friends on Xbox Live.
Xbox Game Pass, that’s Microsoft’s monthly gaming subscription service, which you currently help manage. It launched just over three years ago, and now has over 10 million subscribers from 41 countries. The service was around six months old when you joined the company. Given your subscription background from T-Mobile, what was that like?
Subscriptions were still a very new concept for Xbox. At the time, the company’s DNA was still very transaction-oriented: stand-alone title sales, as well as in-app purchases. The team launched the initial Game Pass catalog with the goal of adding more games regularly and improving the offering for members. They brought me on board because they were looking for someone with additional perspective around concepts like customer lifetime value, churn rates, and member engagement.
That’s right, you came into Xbox knowing a lot about subscriptions and mobile phones from your time at T-Mobile. Let’s talk about what you learned about subscriptions and video games along the way to the current 10 million subscriber base. I’m sure a lot of developers were worried at first that subscriptions would cannibalize their game sales, for example. What have you seen happen to revenue?
The short answer is that it went way up. In the old model, a game used to earn 75% of its revenue in its first two months. Today a subscription-based game takes about 24 months to earn the same amount. And that’s a good thing, for a couple of reasons. First, a lot of these games have in-app purchases, so the longer people play, the more they tend to buy. Second, as I mentioned earlier, successful games have a community effect. They actually grow their audience over time, which is kind of surprising when you think about it relative to other kinds of media. Revenue per user might be lower when compared to the old model, but that’s offset because the audience has increased by an order of magnitude.
Did you see any shifts in gaming behavior? Do people think differently about games when they consume them on an access model?
Oh, definitely. Discovery has gone way up, for example. People feel free to try out all sorts of new games, because the pricing barrier is so minimal. For example, we have a great puzzle game called Human: Fall Flat. Sixty percent of the people who play this game have never played a puzzle game before. And forty percent of them go on to buy another puzzle game. So the subscription model has completely changed gaming behavior. It’s made people more open to trying new experiences. It’s also starting to open up our demographics. There’s greater racial diversity, greater income diversity.
It goes back to that idea of games as places to explore and create. And games as places that allow people to connect with each other. A few years ago there was a lot of hype about VR enabling all sorts of virtual environments, but the fact of the matter is that it’s happening right now. The social connection isn’t a byproduct of the game anymore. It’s the main feature.
Right. If you and your friend have Xbox Game Pass, you live in a world where you have a shared library of over 100 games, all the time. So you always have a neighborhood to hang out in. In fact, starting September 15, Xbox Game Pass Ultimate members can play more than 100 games from the cloud on their Android phone or tablet. There are really no barriers anymore.
The COVID crisis is a massive accelerant for change, and gaming is obviously a huge part of that story. Thanks, Sarah!
Thanks, Tien. Any time.
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.